Orexplore Technologies (ASX: OXT) shares are up 120% today. OXT has jumped on the back of a deal signed with BHP. At which point we need to do a bit of thinking. Because yes, this is transformative. A small company manages to land one of the whales of the business as a customer yes, very grand indeed. It is also true that the idea and technology being offered is one of those that is clearly - at heart that is, this implementation might be the bees’ knees, might not be - going to be of great interest to the wider industry. So, yes, there should definitely be a share price rise here and a hearty pat on the back to boot. However, this much?
The announcement itself: “Circa $1.55m agreement for the deployment of Orexplore’s mobile field scanning installation and technology platform to BHP’s Carrapateena operation.
Delivering multiple Orebody Knowledge (OBK) solutions including rock mass
characterisation; smart domaining; and geometallurgical value drivers to improve
mining and operational planning and outcomes.” That’s all a bit of a mouthful for non-domain specialists. Much of the rest of it is corporate boilerplate about how wonderful it’s going to be. But it is possible to translate this into something simpler.
Artificial Intelligence is very good at two things, holding a knowledge base and pattern recognition. When you’re out there mining those are two things you really want too. Because the rock is laid out this way, twisted that, have we seen something similar in other deposits? If we have, then what was done there to maximise output at least cost? Knowledge plus pattern recognition. In a way, and only partially, they’ve put part of the brain of an experienced mining geologist into the box. This is obviously of huge value to mining companies assuming that it does work as advertised.
Orexplore Technologies share price from Google Finance
A rise in the Orexplore share price is clearly justified. But 120%? Well, that becomes a matter of opinion. One the one hand we could say that OXT was, before this, a $5 million market capitalisation company. This contract is $1.5 million. So, it’s clearly not worth $5 or $6 million on the market cap.
On the other hand we could say that a tiny company has just landed the whale. Assuming that the tech works as advertised then they’ll get picked up not just by this project but by more to many of the BHP ones. And, possibly, with this justifying client, many more miners. So the value to be ascribed is not just this contract but that verification of the tech idea that it represents and the future market for it.
Either or both are valid responses. Our own best guess is that the current pricing has too much of the second - all of that hope of future business - in it. We’d expect to see the price soften a bit as the excitement dies down. Yes, it is a lovely contract for such a small company to have won. But not 120% so lovely.
